Eminent Domain

When I used to have more time on more hands (or more energy for my time) I did some blogging about eminent domain issues. One of those blog entries received a comment a few days ago that I wanted to address:

I appreciated your article on the TIF struggle in Des Planes. In Newton, IL, the mayor and his rubber stamp council (seven of eight) are making plans to establish a TIF district. I do not think that it can be legally done, but need help.

I’d love to help, but for a legal fight, you’re going to need help from a lawyer with experience fighting TIFs. I’ll get back to this.

I have read that the first prerequisite for a TIF is that it must occupy an area that, by statute, is blighted. The proposed district includes a strip of territory a block or more wide on either side of our two main streets (the business district); the public square and adjacent territory; and the “Pale Jumbo” Industrial Park (which has never had an occupant). There is no possible way that this, or any area our little country town of about 3,100 population, contains five of the necessary conditions to be, by statutory definition, blighted.

Some of the 13 factors are vague and not that hard to establish. The easiest is probably Lack of Community Planning. In other words, if the town government has never interfered in an area before, that automatically gives them one of the five factors needed to interfere with it now.

The town government has two big advantages in declaring an area blighted. First of all, they can influence some of these factors in their favor. For example, they can refuse to allow curb cuts and zoning variances, and then they can argue that the property has a Deleterious Layout that’s not good for anything. Also, just by attempting to declare a TIF, they can discourage tenants from moving in, and they can discourage property owners from maintaining their property, leading to Excessive Vacancies and Deterioration.

The second advantage the town has is that they get to define the TIF district. So, for example, they can meet the requirements for lower-than-average property values (already true by definition for half the town) by choosing properties carefully. Combine a thriving corner restaurant with the empty building next door, and they get to take them both.

The proposed district also includes twelve acres adjacent to the city that the mayor proposes to purchase. This acreage was a bean field last season, and though it is slow to drain it is not chronically flooded; I feel certain that it can not be considered blighted. Are these fact alone sufficient to defeat the proposition? What should I do?

The town doesn’t have to prove that every single property meets the five-factor test, just all the properties combined. So, one polluted property, one dilapidated property, one obsolete property…

If you have any literature, suggestions or tips that you can let me have, I will certainly appreciate it. Also, if you know of anyone who is knowledgeable on the subject and who lives in the vicinity of Newton and would speak on behalf of the opposition at a hearing, please give me his name and address.

So far, I’m just trying to scare you into action. Now you want actual help?

The number one resource for all things eminent domain is The Castle Coalition, which is part of the Institute for Justice, the public-interest law firm that fought the Kelo case into the Supreme Court. They probably can’t give you legal help—there are too many cases and too few lawyers at the IJ—but their survival guide explains how to find lawyers and mount a public offensive against eminent domain abuse.

It’s important to keep in mind that although the main action is the legal battle, the war against an eminent domain abuse takes place on a much larger front. You need to try to win the battle for people’s hearts and minds, to put pressure on the town government.

Even more important, you need to try to shut off the money. In many cases, the town already has investors lined up to receive the property, often because the investors are pushing for the eminent domain action for their own benefit. You need to try to drum up bad publicity against the investors and subject the project to long delays to encourage them to do something else with their money.

Finding a way to get the developer out of the picture will often end the active eminent domain effort, even if you can’t win the legal battle. I know of a couple of cases where the prospect of delay and public ill-will caused the money to back out of the deal. The TIF districts are still there, and some actions are still pending in court, but without the money, nobody is actually pushing for the eminent domain action to continue.

Really, that does look a bit run down. But it looks like the sort of thing that could be fixed with a few hundred thousand dollars worth of construction, not a $120 million TIF district.

The lack of maintenance is not the only thing that bothers TIF advocates, however. They also seem to hate mixed-use land. That is, they want buffer zones between commercial and residential properties. I have to admit it’s a little odd finding this home surrounded by restaurants and landscaping contractors, transmission shops and plumbing stores:

Note that the utility service—gas meters and power lines—all come from the front of the buildings, as would be typical in rural areas. These are obviously not the fine buildings you typically find in a modern suburban commercial district.

In some ways, this is classic so-called “blight” that TIF proponents are always trying to get rid of: Older buildings that aren’t very flashy, containing small businesses that aren’t well-known names.

Politicians are always selling themselves, and they all love to say they run the kind of town that brings in a Target or a Circuit City or even a Potbelly’s. I guess very few of them see the value in running the kind of town where Rosario Cassata decided to setup his small landscaping business, or where Bob and Trish decided to run their well-cared-for little bar.

I’ve been meaning to comment on this, but Cal Skinner beat me to it. Graydon Megan is reporting in the Chicago Tribune that the deal between Arlington Heights and Target Corporation is in the toilet.

“Target has realized, I think, with the passage of time, increased costs and the pending lawsuits, it doesn’t make economic sense for them to proceed under our own redevelopment agreement,” Village Atty. Jack Siegel said before the board meeting Monday night.

Target representative Brie Heath said the decision was based on economics.

“While we continue to be interested in an additional Target store in Arlington Heights, we have mutually agreed with the village to withdraw our project,” Heath said.

The village of Arlington Heights hasn’t actually cancelled the TIF district, but this hurts them a lot because they don’t have a buyer standing by for the property. I’ve seen other eminent domain projects fall apart when the money went away.

Ron Popp, an owner of Arlin-Golf Plaza, said the shadow of the TIF hanging over the area has kept his center nearly vacant.

Part of the village’s justification for the TIF is the lack of tax revenue from the property. How much revenue have they lost due to the vacancies they helped create? How much did they spend to do the TIF study? How high is their legal bill?

Village sources said total project costs, including those related to the bond sale and legal expenses, have not been tabulated.

Yeah, that would probably be embarassing.

In response to complaints from tax district tenants and owners about a lack of concern for their future, village officials said they have worked with businesses in four other tax districts, helping them remain in a new development or relocate within the village.

God, the arrogance. The village helped businesses “remain in a new development.” Would that be a new development on the property the village had just taken from them? The property they had been using for years already before the village got involved?

The Des Plaines TIF is so huge that I’ve got to start posting more pictures or I’ll never get done. So here’s a few pictures from Jimmy’s Restaurant, another property threatened by eminent domain in the Des Plaines Five Corners/River-Rand TIF District.

As you can see, Jimmy has been pretty active in the TIF opposition effort.

There may be some actual blight in the Des Plaines TIF zone, but you won’t find any of it at Jimmy’s. The owner spent a lot remodeling the interior. I couldn’t take too many pictures with all the customers there, but check out the interior:

In July of 2002, the Village of Arlington Heights, Illinois handed down a bogus “blighted” designation to the International Plaza, a local shopping center, in order to bulldoze it and put up a Super Target store. This move would boost the Village’s tax revenue considerably. It would also trample personal freedoms, private property rights, and many of these business owners’ livelihoods.

The article includes contact information for Target and a sample letter.

Here’s another property threatened by eminent domain in the Des Plaines Five Corners/River-Rand TIF District. The last two businesses I blogged about, the Geiser-Berner plumbing shop and the corner BP Gas Station are both inside what I’m calling the Inner Triangle, the region bounded on the east by River Road, on the southwest by Rand Road, and on the north by the Union Pacific railroad tracks. Directly between those two properties is the Suburban Transmission building.

Judging by the number of cars (and the number of signs) this is a thriving business. Actually, if you take a close look at the next photo (click through to the larger image), you can see that this building is an auto repair mini-mall containing Suburban Transmissions, Fair Muffler Shops, and ReNew Auto Body.

I can make out signs for AJ’s Auto Repairs, so that’s four businesses that face major disruptions if this property is condemned. How blighted can this property be if four businesses thought it was a good idea to squeeze themselves into it?

I wish I’d paid more attention to this when I was there. I’d like to talk to the owners and make sure this is really four businesses. It could just be a bunch of different services provided by the same company, kind of like those KFC-Taco Bell places.

This BP gas station is another of the businesses that the Des Plaines City Council is calling “blighted.” Located on the northwest corner of the intersections of Rand and River roads, it’s very nearly at the center of the TIF district.

I’ve got hundreds of photos from the Des Plaines River-Rand TIF, and it’s about time I posted a few of them. I’ll start with this batch from Geiser-Berner Plumbing, Heating, and Air Conditioning. Its owners, Robert Janczak, Ed Lehman, and Scott Olson are among the more outspoken opponents of the TIF.

Their shop is a standalone building with a somewhat out-of-date look. In these photos you can see that it’s not particularly run down, but you wouldn’t confuse it with a new building. Still, it’s hard to see it as “blighted.”

I glanced into the showroom when I visited and took a couple of shots. You can see that they’re putting some money into making it look nice. Depending how the TIF turns out, they may be sorry they did that.

The decision to remodel a showroom can be analyzed like any other business decision: What’s the return on the investment? If it costs $10,000 to remodel, and the new design is expected to be in use for 10 years, then the remodeled showroom had better produce an increase in net income sufficient to pay back the cost, plus a discount for the fact that you have to spend the $10,000 now, but the payback is spread out over a decade (kind of like interest on a loan). If the discount rate is 10%, a $10,000 remodeling job has to earn roughly an extra $1,600 per year to be worth it.

However, if the property will be seized in three years, that $1600 per year amounts to only about $4800, less than half the remodeling cost.

For Geiser-Berner, it’s too late. The remodeling price has already been paid…for this remodel. Future remodeling jobs and future repairs to the building, will have to be judged against the shorter time period enforced by the pending eminent domain seizure. This will have the effect of discouraging remodeling and repairs, bringing about some of the blight that the City of Des Plaines is so worried about.

Note: I’m not an expert in either corporate finance or valuation of condemned properties, so I’ve done violence to both in my explanation above. For one thing, eminent domain seizure of the property is not a certain thing, so it would be treated as just one of several risk factors affecting the decision to remodel. For another, remodeling that increases the value of the building should result in a higher payment for the property (reducing the loss from the short period of use) but the rules for such calculations are complex beyond my understanding.

A bunch of folks showed up at the International Plaza shopping mall yesterday to distribute fliers and conduct a survey as part of the effort to save the plaza and a few neighboring properties from eminent domain abuse.

(The young lady at right is a reporter who showed up to cover the effort.)

The village of Arlington Heights is trying to use a TIF district to take over the mall property so Target can build a store there. Not only will the village be saving Target from the effort of assembling the land, but the village has also promised to rebate some of the property taxes back to Target in the form of a sales tax reduction, according to TIF opponents.

The survey effort was lead by Scott Bludorn, a local activist and occasional office-seeker who is familiar with running political operations. I was amazed by how well prepared he was, with maps and lists of likely voters for everyone who showed up to help. He also had practical instructions for approaching people, taking the surveys, and handing out fliers.

(The most important rule of distributing fliers, by the way, is never leave them in or on a mailbox. Only the U.S. Post Office is allowed to deliver stuff to mailboxes and they get pretty upset when someone else does it.)

The survey and flier operation continues today, and may be repeated again in the near future.

While the legal battles for International Plaza are slowly grinding forward, the public relations battle is picking up steam. Sheila Ahern of the Daily Herald has a nice summary of what’s going on:

In the past few months, the plaza’s owners have held two rallies, phoned residents and started a Web site to try to save their shopping center from eminent domain condemnation.

On Saturday and Sunday they’re looking for volunteers to help go door-to-door to persuade Arlington Heights residents to speak up to save the plaza at Arlington Heights and Golf roads.

“We can’t lollygag around,” said Stephen Bachtell, general manager of Studio Salons in the International Plaza. “We go to (village board) meetings and no one says anything, but people are listening to us. This is getting bigger

If you’re interest in helping out, here’s how:

International Plaza owners are looking for volunteers to help canvass Arlington Heights neighborhoods on behalf of their cause. Volunteers should meet between 11 a.m. and 12:30 p.m. Saturday and Sunday at Oak Furniture Creations, 214 E. Golf Road at the International Plaza.

Actually, the meeting is not at Oak Creations but at the vacant storefront the used to house Oak Creations.

This is Pesche’s Flowers, one of the many businesses in Des Plaines, Illinois, that the city claims is “blighted” so they can abuse their eminent domain power to replace it with something they like better.

The city’s materials justifying the TIF show some of the worst views of some of the uglier properties, so I thought I’d break with my usual documentary style to show you one of the prettier views in the TIF.

(Unfortunately, even on Christmas Eve, the parking lot lights were set to come on at sunset. It would have been a nicer image without them.)

Cal Skinner just sent me an email pointing out a PAC called Des Plaines Residents for Responsible Taxation. Its officers are Scott Olson and Barbara VanSlambrouck, co-owners respectively of Geiser-Berner and Chromatech, both of which are threatened by the Five-Corners TIF in Des Plaines.

I spoke to another Geiser-Berner co-owner, Robert Janczak, a while back and he told me that the non-profit they formed earlier to fight the TIF was not allowed to oppose the referendum for the TIF because of campaign finance regulations so they had to form another organization. I guess this PAC was it.

That people have to hire lawyers to jump through hoops like this is one more bit of evidence that a lot of so-called “campaign finance reform” is just another way for incumbent politicians to say “don’t bother us.”

In my previous post, I was exploring some of International Plaza’s neighbors that are also part of the TIF district and in danger of condemnation. In the photo above, the building in the background is the Arlin-Golf Plaza strip mall.

As I walked around to take more pictures, the sign promised a small but thriving mall. I’ve driven by here a lot in the past, and that’s certainly what I was expecting. The reality was somewhat different:

That makes a lot of sense, doesn’t it? In a mall that’s threatened by eminent domain, where someone with even a long-term lease could get kicked out at any moment, you’re only going to get businesses that don’t need a huge investment in remodeling. Thus, tables and chairs.

So, what’s the reason why this property is blighted? According to Hsu, it’s this:

There was a rally for International Plaza a few weeks ago, but I had errands to run that morning, and by the time I got to the Plaza, all the excitement was over. There were just a few stragglers, including a newspaper reporter and Leo Plotkin who owns Unigma Camera.

Plotkin told me that he put about $100,000 into remodeling the property he leases for his camera store. I don’t understand the rules for compensating leaseholders for condemnation, so I’m not sure how much of that he could expect to get back. Judging by his work to protest the seizure of the mall, I don’t think he’s expecting much.

Ironically, Plotkin emigrated here from Russia, I guess because he heard we were the land of the free.

The owner of International Plaza, Su-Chuan Hsu, was at the rally, and she told me that Oak Creations had decided not to renew their lease, giving the potential condemnation of the property as the reason.

On the other hand, despite the threat of eminent domain, the Nari Sushi House has opened. (Apparently it hadn’t actually opened last time I photographed it.)

Hsu was nice enough to answer a bunch of my questions. For one thing, she explained which properties besides International Plaza were slated to be condemned, so I can now present a more accurate map:

Hsu explained that the village was claiming International Plaza was blighted because it had a lot of vacancies, but she claims it was about 97% occupied at the time. She says occupancy has been declining since the TIF because tenants are reluctant to remodel storefronts that they may not get to keep for the full term of their lease.

Even if the occupancy figures were as low as the village claims, isn’t that her problem? Given that she loses a fortune in rental income for every vacancy, I think she’s in a much better position than anyone on the board to know how many vacancies are acceptable. (It’s not that she wants the vacancies, but she’s willing to suffer a few vacancies in order to achieve some other business goal, such as finding tenants willing to pay higher rates or avoiding troublesome tenants.)

Hsu also explained the reasons why each of the other properties was blighted.

The Kitakata Japanese Restaurant is located just to the east of International Plaza, and the village of Arlington Heights claims it is blighted because it doesn’t have enough parking spaces, according to Hsu.

Again, that would seem to be the owner’s problem. If the restaurant has enough parking spaces to make its owner a profit, then why should anyone care what the Arlington Heights village board thinks?

It might be different in an area where there’s parking on the street because restaurant patrons who can’t find space in the parking lot might use up too much of the public street parking. But this is a busy suburban intersection, with no street parking as far as the eye can see.

Besides, remember I said that Kitakata was right next to International Plaza? Surely they can work out some sort of shared parking arrangement, right? In fact, from the looks of this plowed path, I think they already have:

Of course, once a property is declared “blighted” it becomes a self-fulfilling designation. Who, after all, would want to develop a blighted property which could be snapped up by the government at any time?